Co-Op Board RejectionsShed light on them

The National Law Journal
Monday, June 25, 2007

unlight is the best disinfectant, Justice Louis D. Brandeis opined.
On matters of
political or corporate governance, progressive thinkers usually agree. But not
necessarily where transparency would trench on the interests of co-operative
apartment owners, as appears from the generally left-leaning New York City
Council's failure to grant a hearing on a bill that would force co-op boards
to
reveal the reasons for rejecting would-be buyers' applications.

So-called Intro 119, supported by 40 civil rights groups, aims
to deter
discrimination in housing and make it easier for victims to vindicate
their rights.
Yet some otherwise die-hard liberals have swelled the chorus of
catcalls from
building owners and managers, attacking the bill as an undue burden
on
shareholders and a threat to their freedom to select their neighbors.
This critique
boils down to a plea to maintain the "clubby" status
quo, at the cost of enhancing
protection from bias in a critical segment of the housing market.
(New York City,
with more than 300,000 co-ops, is the leader of the pack, but extrapolation
from
2005 American Community Survey statistics suggests that almost
5 million people
in the United States live in such units.) The nation's co-op capital
has an obligation
to permit Intro 119 – and the co-op purchase approval process – to
see the
wholesome light of day.

Discrimination persists

Discrimination against minorities, people with disabilities and
other protected
groups remains alive and well in co-ops. Because they wish to maintain
good
relationships with boards and to protect prospective buyers, brokers
frequently
steer the latter to buildings regarded as compatible. As one put
it: "[W]e try to take
the temperature of the building to find out what kind of people
the board is
looking for." Jay Romano, "Last Co-op Hurdle: The Board
Interview," N.Y.
Times, Feb. 25, 2007, Sec. 11. While all shareholders are entitled
to look for
financially and socially responsible neighbors, a number want only "people
like us" –
not African-American, wheelchair-bound, gay or Jewish.

Illegal bias is difficult to fight in any context; a 2002 Urban
Institute study found
that 83% of home seekers who believed they had suffered discrimination
did not
take any remedial action. But it is especially hard to combat in
the co-op setting.
Unlike in apartment rentals or purchases of houses, disappointed
co-op buyers
cannot realistically get fair-housing or government agencies to "test" whether
people with equivalent credentials were treated differently based
on
protected-class status since board approval is sought only after
the parties sign a
contract and the applicant obtains financing.

Thus, when co-ops turn down a prospective purchaser, they mainly
do what their
trade associations and lawyers recommend: withhold information
about the reason
for the rejection. This strategy not only denies fundamental fairness
but also
profoundly exacerbates the problem of fighting discrimination.

Intro 119 mandates that co-ops reveal in a timely manner the
specific grounds for
rejecting an application; it also imposes meaningful penalties
for failing to do so
â€” damages, and a ban on proffering new reasons in defense
of a discrimination
charge brought by a disappointed applicant. Its provisions would
discourage
boards from violating human rights laws.

First, victims will be alerted to circumstances suggesting bias
if the required
statement cites only vague or subjective grounds for the action
taken, such as "the
family does not fit in." The law will also prod co-ops to
put their cards on the
table up front, thereby reducing the incidence of pretextual (or,
at best, unreliable)
post hoc rationalizations produced in litigation to defend turndowns.
In addition, it
will facilitate a more open co-op market. When would-be purchasers
know
rejection will entitle them to pierce the veil of corporate secrecy,
more of them
will dare to explore the full universe of co-op buildings, just
as fewer board
members will dare to engage in discrimination. Equally important,
most co-ops
would probably attempt to comply with the mandate in good faith,
and thus be
more apt to recognize, and nip in the bud, conduct based on unlawful
bias.

Contrary to its opponents' claims, the law's burdens do not outweigh
its
considerable benefits. Only evasion is made difficult – it
should be. Every
board knows its reasons at the time it acts. The industry itself
states that rejections
occur quite rarely; hence, most co-ops will have very few statements
to complete.
Concerns voiced over the potential for baseless litigation, and
consequent
discouragement of board service, are overblown: The bill expressly
preserves
co-ops' right to turn someone down on any nondiscriminatory ground.

Thus, co-op owners have nothing to lose but their "right" to
hide the ball.
Limousine liberals should pay heed.